WHAT IS CHURN RATE?
Churn rate is the percentage of subscribers to a service that discontinue their subscription to that service in a given time period. In order for a company to expand its clientele, its growth rate (i.e. its number of new customers) must exceed its churn rate. Churn rate is an important consideration in the telephone and cell phone services industry. In many geographical areas, several companies are competing for customers, making it easy for people to transfer from one provider to another.
With growing pressure from competition and government mandates improving retention rates of profitable customers has become an increasingly urgent to telecom service providers.
WHY CHURN RATE IS IMPORTANT?
Churn rates are often used to indicate the strength of a company’s customer service division and its overall growth prospects. Lower churn rates suggest a company is, or will be, in a better or stronger competitive state. Customer loss impacts carriers significantly as they often make a significant investment to acquire customers.
The ability to predict that a particular customer is at a high risk of churning, while there is still time to do something about it, represents a huge additional potential revenue source for every online business. Besides the direct loss of revenue that results from a customer abandoning the business, the costs of initially acquiring that customer may not have already been covered by the customer’s spending to date. (In other words, acquiring that customer may have actually been a losing investment.) Furthermore, it is always more difficult and expensive to acquire a new customer than it is to retain a current paying customer.
HOW TO ANALYZE CHURN RATE
Clearly, churn rate is a critical metric for any subscription business. But there are also a variety of opinions about how to calculate it.
- CLTV: Understanding customer lifetime value (LTV) is one of the most complex and important analyses a business can take on. Every part of your organization affects the outcome of the calculation: acquisition costs, revenue, customer service, and returns. It’s an accurate approach to customer churn prediction- at the core it has the ability to predict which customers will churn. The approach takes into consideration both micro- segmentation and their behavior pattern. By merging the most exacting micro-segmentation available anywhere with a deep understanding of how customers move from one micro-segment to another over time – including the ability to predict those moves before they occur – an unprecedented degree of accuracy in customer churn prediction is attainable. Figuring out which one will stay for long and will reap how much revenue, helps the service provider to judge whether spending on a customer is worth the effort or not.
- CVM: Customer value management (CVM) is a holistic way of evaluating individual subscribers in terms of their overall profitability- now and in the future. CVM has the potential to boost earnings. This measure covers subscribers at every stage of their relationship with the operator. Relying on a combination of tactics, including customer payback period, budget rebalancing, tailored customer rewards, and cross- and up-selling campaigns. CVM technique help companies analyze which customers are the most valuable, and why. Indeed, this approach is a key capability in a world where the potential customer base simply isn’t getting any bigger.
- Predictive Churn Modeling: Predictive technology is a body of tools capable of discovering and analyzing patterns in data so that past behavior can be used to forecast likely future behavior. Predictive technology is increasingly used for forecasting in most of the Telecom companies’ balance sheet. The raw data can be processed to get predictions about consumer behavior for future campaigns.
- Postpaid and blended churn rates: This churn rate is based upon the losses of both pre-paid and contract customer. Post-paid subscribers are a telecom company’s one of the biggest revenue segments since they have a significant lifetime value for telecom companies. Their discontinuation of services accounts for a major loss in company’s revenue.
- ARPU: Average Revenue per User or ARPU or average revenue per unit is an expression of the income generated by a typical subscriber or device per unit time in a telecommunications network. ARPU provides an indication of the effectiveness with which revenue-generating potential is exploited. The ARPU can be broken down according to income-producing categories or according to diverse factors such as geographic location, user age, user occupation, user income and the total time per month each user spends on the system.
- AMPU: The Average Margin per User is calculated on the basis of net profit rather than total income. In recent years, some telecommunications carriers have increased their reliance on AMPU rather than ARPU to maximize their returns as niche markets become saturated. By breaking down customer sales by margin rather than by revenue, companies that have lower sales volumes but create larger margins can be considered more efficient and arguably more profitable than their high-volume competitors.
- Real- Time Data: Real-time data in customer churn makes the best possible solution today, as it is based on up-to-the-moment information about a subscriber. Achieving real-time data enables the company to immediately adjust it’s offers and solutions in response to the reason of dissatisfaction/ discontinuation of services. Deploying analytics and systems that trigger the moment your subscriber is shifting to your competitor, helps process the retention effective and faster.
- Binary classification method: This method uses a gain/loss matrix, which incorporates the gain of targeting and retaining the most valuable churners and the cost of incentives to the targeted customers. This approach leads to far more profitable retention campaigns than the traditional churn modeling approaches.
- General Signs: Customers today are highly conscious of what they need and what is available in the market. The telecom players should always lookout for signs that the customer may be planning to shift. These can easily be picked up from sales support interaction with them- when he bluntly says he is shifting to a competitor, when he is quoting what other players offer, when he is enquiring about MNP or when he is simply calling competitor’s phone line looking for alternatives to his problem.
SOLUTIONS TO REDUCE CHURN RATE
Acquiring a customer is far more costly than keeping a customer. So any company that wants to retain its customers should find some value in analyzing and lowering down the churn rate. Even emerging markets, which witnessed high growth in the past, are now looking to consolidate their customer base and differentiate themselves from their peers to reduce churn rates.
Telecom players use a variety of different metrics to determine when customers are about to churn, or leave. It is profitable for companies to explore the reasons why customers are leaving, and then target at-risk customers with enticing offers.
- There are a number of different tactics companies use to maintain their customer bases. One of the most important is simply providing efficient customer service. Providing clients with an easy way to get questions answered and issues handled is the key to maintaining cellular clients.
- Value- added services serve as a subscriber retention tool, especially for established players. While for newer entrants, it will become a part of the marketing strategy to attract customers. If VAS providers leverage the opportunities to tie up with operators, there could be a major increase in the uptake of their services.
- A commonly used tactic is for a carrier to offer upgrades on the client’s existing account. Expanding on services offered and giving better rates or discounts to the client often improves customer retention rates.
- Another tactic is offering free access or reduced rates on smartphone applications. The increasing regular use by customers of cellphone applications makes free access to such applications an enticing bonus for many customers.
- Competing cellular providers aggressively market special deals to churn customers away from their current provider. Common practices include offering free phones and buying out any existing service contract. The cellular service business is highly competitive and will likely remain so; therefore, churn rates will continue to be an important focus for cellular providers.
- Personalized Tariff plans and service recommendations to each subset of subscribers because a one-size-fit strategy is no longer suitable for telecom sector, every user has a different purpose and usage pattern.
- By leveraging the user traffic, operators’ strategic and technical teams can make clear and decisive decisions to reduce costs by millions of dollars without jeopardizing quality.
- Fighting wireless churn with trendy smartphones and fast data network
- One-on-one Marketing is one of the best tactics to reduce churn rate. Make sure that customers are communicated the new services offering based on their usage analysis and trends and should be given proactive information on the plans which will benefit the customer.
- Effective communication is one way to reduce churn. Being proactive in addressing difficulties and issues faced by your customers not only helps in building trust and reliability but also ensures a strong working relationship.
- Cultivate loyalty with attractive smartphone portfolios and strong mobile data networks to support those devices. Loyal customers are less likely to churn because they are more invested in your business relationship and companies have built up a long history of delivering good results and keeping promises.
BRAND LOYALTY AND CHURN RATE
The loyalty, and prospective churn, impact of both the tangible and intangible elements of value can be determined through formal qualitative and quantitative customer research. In addition to predictive churn models, these research methods can be used to help anticipate customer turnover. They include evaluating the impact of expressed and unexpressed complaints, and setting up targeted loyalty indices.
They see the brand as a highly critical company asset, to be enhanced and protected over the long term. Unlike rate plans, coverage areas, contracts, equipment and the like, brand image is one of the intangible elements of value which create, or undermine, true customer loyalty and advocacy. Loyal customers cost less to serve and are most likely to refer other customers.
Operators are expecting greater customer retention and loyalty due to an improvement in the quality of their services with boom of value- added services. With MNP the customers got the freedom to change their service providers without changing their numbers, thereon, VAS has been viewed by operators as a differentiating factor which can help them grow and sustain in a competitive market.
Apart from churn management, companies can use the following techniques to improve overall performance:
- A well-developed customer business strategy
- An end-to-end management process of customer knowledge/relationship
- As detailed and in-depth information about customers, and customer profiles, as possible, leading to tight segmentation
- Frequent updating of customer knowledge and predictive segmentation
- Flexible marketing actions with customers
- Ongoing evaluation of action results, i.e. impact on the business
Churn rate is a growth decelerator. The metric measures the number of subscribers who leave and is often reported quarterly. Obviously, a low churn rate is ideal. Companies that experience a high churn rate are under more pressure to generate revenue from other areas or gain new clients. It’s almost always cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn is the first step in understanding how good you are at retaining customers and identifying what actions might result in a higher retention rate.
All industries suffer from voluntary churn — the loss of customers to some other company. The survival of any business is based on its ability to retain customers. Churn always happens, eventually. But it’s your efforts in lowering down the impact, will make all the difference in the bigger picture- your position in the leaderboard!